Full year report January December 2017

Transcription

1 Capio AB (publ) Full year report January December 2017 October December 2017 Net sales MSEK 4,077 (3,725). Organic sales growth 3.4% (2.9) and total sales growth 9.4% (6.1) EBITDA 1 MSEK 348 (289) and margin 8.5% (7.8). EBITDA increased by 20.4% EBITA 1 MSEK 232 (183) and margin 5.7% (4.9). EBITA increased by 26.8% Operating result (EBIT) MSEK 205 (153) and margin 5.0% (4.1). EBIT increased by 34.0% Profit for the period 2 MSEK 155 (135). Earnings per share after dilution 2 SEK 1.09 (0.96) January December 2017 Net sales MSEK 15,327 (14,069). Organic sales growth 2.4% (3.3) and total sales growth 8.9% (4.3) EBITDA 1 MSEK 1,114 (1,061) and margin 7.3% (7.5). EBITDA increased by 5.0% EBITA 1 MSEK 659 (644) and margin 4.3% (4.6). EBITA increased by 2.3% Operating result (EBIT) MSEK 540 (558) and margin 3.5% (4.0). EBIT decreased by 3.2% Profit for the period 2 MSEK 370 (404). Earnings per share after dilution 2 SEK 2.62 (2.86) Proposed dividend SEK 0.95 per share (0.90) CEO comments: Solid Q4 now speeding up the journey of specialization and digitalization. In October we set two targets: to reach a Group EBITDA growth for the full year 2017 of 5-7% and to increase the French EBITA margin in Q compared with Q We are now delivering a 5% full year EBITDA increase for the Group and a 100 basis points Q4 EBITA margin increase for France. Organic sales growth increased in Q4, especially in France, which contributed to the margin improvements. The solid result growth in Q4 for the Group (20%+ of both EBITDA and EBITA) was mainly driven by actions taken in the French hospitals for improved productivity, supported by a positive calendar effect, and a continued solid development in the Nordic business. The Nordic development was supported by a positive trend change in the Stockholm primary care and contributions from acquisitions. The German segment has underperformed our expectations due to a continued weaker sales growth than expected. Actions are being taken both to improve sales and adjust costs. There is a continued strong focus on improvements in all segments and we pay special attention to France that now has to demonstrate and confirm a continued ability to compensate for the price reductions and develop the business further. * As a Group, we are now prepared to accelerate specialization in all geographies. Below, France and Sweden are in focus. Specialization will further develop Capio France Since 2015, we have met the price decreases in France with productivity improvements, enabled by modernization of the healthcare provided Rapid Recovery. We are seen as a leader in this area. We now start another transition from a fully geographical organization to a specialized organization that can be more efficient in attracting patients and doctors to our Rapid Recovery offering, driving growth and synergies of scale. The five largest Capio hospitals, representing more than 50% of the French net sales, are now organized under one management team led by the country president. This increases focus and facilitates knowledge sharing in core activities, improves processes, and coordinates important specialties between the hospitals. The smaller hospitals will be focused on fewer specialties, increasing quality, productivity and volume. Certain specialties will also be gathered in separate organizations to have full focus on providing the best and most efficient care to patients in these areas of care. In addition, we are upgrading the IT environment, to increase automation and facilitate digitalization, and are strengthening procurement management to improve performance. Digitalization transforms healthcare provision in Sweden The obvious effect from digital consultations in primary care is improved availability, while the most important medical outcome of the way Capio drives digitalization is improved quality. Capio s unique feature is also the implementation of digital consultations combined with our 83 physical primary care centers in Sweden. This creates a coherent patient pathway to Capio s 750,000 listed patients and increases Capio s attractiveness to patients, hence representing a growth driver for our primary care business in Sweden over the coming years. Going forward The specialization of the French organization and the digital transformation in Sweden will support organic sales growth and operating margin going forward. Acquisitions will continue to contribute to the total growth of the Group. Thomas Berglund President and CEO 1 Refer to page 34 for definitions of EBITDA and EBITA. 2 Profit for the period refers to profit attributable to parent company shareholders. Refer to note 2 for calculation of EPS (before and after dilution). This is a translation of the original Swedish full year report. In the event of difference between the English translation and the Swedish original, the Swedish full year report shall prevail. Capio AB (publ) Corporate identity number Visiting address: Lilla Bommen 5 Tel Box 1064 SE GOTHENBURG

2 The Group and the segments in brief Capio Group OCT DEC Change, % Change, % Net sales 4,077 3, ,327 14, Total sales growth, % Organic sales growth, % EBITDA ,114 1, Margin, % EBITA Margin, % Operating result (EBIT) Operating margin (EBIT), % Profit for the period Earnings per share after dilution 2, SEK Net capital expenditure In % of net sales Net debt 3,691 2,872 3,691 2,872 Financial leverage Segments OCT DEC Capio Nordic Change, % Change, % Net sales 2,324 2, ,695 7, Total sales growth, % Organic sales growth, % EBITDA Margin, % EBITA Margin, % Operating result (EBIT) Operating margin (EBIT), % Net capital expenditure In % of net sales Capio France OCT DEC Change, % Change, % Net sales 1,434 1, ,435 5, Total sales growth, % Organic sales growth, % EBITDA Margin, % EBITA Margin, % Operating result (EBIT) Operating margin (EBIT), % Net capital expenditure In % of net sales Capio Germany OCT DEC Change, % Change, % Net sales ,197 1, Total sales growth, % Organic sales growth, % EBITDA Margin, % EBITA Margin, % Operating result (EBIT) Operating margin (EBIT), % Net capital expenditure In % of net sales Profit attributable to parent company shareholders. 2 Refer to note 2 for calculation of earnings per share (before and after dilution). Capio AB (publ) Full year report, January December (36)

3 Financial targets and development Net sales and sales growth Quarterly development (RTM) MSEK % 16, ,000 8 Target and development The target is to grow organically at least in line with the market and add acquisition growth at least at a similar rate over time 14,000 13,000 12,000 11,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Net sales Organic sales growth, % Total sales growth, % Total sales growth 8.9% and organic sales growth 2.4% (Jan-Dec 2017) Organic sales growth was above market growth in Nordic and in line with market growth in France. Organic sales growth in Germany was slightly lower than the German market growth following lower inpatient volumes Completed acquisitions are increasing the pace of total sales growth EBITDA and margin Quarterly development (RTM) MSEK % 1, ,100 8 Target and development The target is to grow EBITDA at a higher rate than sales growth through increased productivity and operational leverage 1,000 7 EBITDA increased by 5.0% (Jan-Dec 2017) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q EBITDA Margin, % The Nordic EBITDA increased at a higher rate than sales growth. In France, leverage was negative due to the lower prices and private market growth in combination with insufficient adjustment of resources. The lower organic sales growth in Germany impacted the development negatively Positive contribution from the acquired businesses, in line with expectations Net capital expenditure and in % of net sales Quarterly development (RTM) MSEK % Target and development The target with present business mix is to keep net capex around 3% of net sales per year including Modern Medicine and expansion related capex Net capital expenditures in % of net sales was 3.1% (Jan-Dec 2017), which was well in line with the target 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Net capital expenditure In % of sales 1 RTM development adjusted for structural changes made in Refer to Capio Annual Report 2015 note 33. Capio AB (publ) Full year report, January December (36)

4 # consultations Digitalization and specialization will support growth and speed of change Digitalization gives higher quality, better availability and power to the patient increasing the attractiveness of Capio s healthcare offering Our focus on digitalization is set to become the open and available entrance to Capio s full healthcare offering, initially for our 750,000 listed patients in Sweden. By the introduction of digital services, such as online doctor consultations, Capio is able to combine digital and physical care, a unique setting in the Swedish market. Digital consultations offer instant access to care without a physical visit. When physical care is needed the patient is transferred to one of Capio s 83 primary care centers Digital when possible, physical when needed. Digital consultations will also free up capacity within the primary care centers, increasing availability to physical treatment. These extended patient services will enhance attractiveness for patients to list with a Capio primary care center and get access to our broad healthcare offering. The most important medical outcome of the way Capio drives digitalization is higher quality of care. In Capio, we are currently implementing services based on a medical algorithm with about 100,000 dynamic questions. The patient starts the service by describing a symptom of her or his problem. The algorithm then starts asking questions and depending on how the patient replies, new questions will be asked. After 5-10 minutes and questions, the system generates a description of the medical history of the symptom (an anamnesis in medical language). This gives the doctor a good understanding of the patient conditions, enabling more precise diagnosing and more efficient use of the time spent with the patient. The patient benefits from giving the description ahead of the consultation, without the stress of remembering everything in front of the doctor. The algorithm is used for preparing digital as well as traditional physical consultations. It is a new and very precise tool for the patient to describe the problem, and for the doctor to use when making diagnosis and deciding on treatment. In coming steps, these dynamic algorithms will develop into artificial intelligence (AI), learning from the combination of treatment and medical outcome. Hence, digitalization of healthcare is much more than a digital phone call or video call, it is to use the power of what we call Big data. The algorithm collects patient data in a structured way, available to the patient and valuable input in creating AI-based solutions for better and more efficient healthcare provision. Capio is collaborating with Doctrin AB to develop the algorithm based services, other digital patient services, and AI based systems. For less severe medical conditions, diagnosing and treatment can now be done in a fully digital care setting. Patients are treated without queuing and availability increases. Obviously, much more convenient for many patients, not always having to spend half a day going to the doctor. Also good for the physical primary care as doctors and nurses can spend more of their time on patients with chronic and other more severe conditions. As a patient you get everything documented; the anamnesis, the treatment and the complete medical record fully open and available for you as an individual. This means that the patient gets full transparency and understanding, the power of knowledge. As of now, Capio has introduced these services to ca. 450,000 of our listed primary care patients. The remaining 300,000 will get access during H This includes both the fully digital consultations and the use of the algorithm to prepare visits at the primary care centers in Sweden. When fully implemented, the online service will be available to all Swedish inhabitants. During 2018, we will also start the introduction of digital services in Norway. Total outpatient visits 1 in Sweden Million visits Capio consultations online Description Healthcare trends 600 A&E visits in hospitals 2 Physical visits in hospitals and specialist clinics Transfer of cases to light A&E centers Transfer of standardized hospital care to specialist clinics Transfer of decentralized patient accessible care 3 from specialist clinics to primary care setting Physical visits in primary care Digital care <0.5 Transfer of less severe conditions to fully digital care 1 Include doctor consultations and other visits in primary care, somatic specialist care and psychiatric special care 2 Accident and emergency visits. Capio estimate based on data from Socialstyrelsen 3 E.g. ENT, dermatology and gynecology Going rate ~30 k visits / year week X Total outpatient visits in Sweden X Capio outpatient visits in Sweden Source: SKL, Socialstyrelsen Capio AB (publ) Full year report, January December (36)

5 In Swedish primary care, the total number of physical visits is around 42 million per year (doctor consultations, nurse and other medical staff visits). At the end of 2017, fully digital consultations can be estimated to less than 500,000 per year, a small but rapidly increasing number. Capio is so far providing only a minor part of this. With a direct link to our 750,000 listed patients, we expect to capture an increasing share of digital consultations. Our combined digital and physical healthcare offering represents a unique setting for Capio in the Swedish market and will support growth going forward. Digitalization is also an important way to reduce cost of healthcare in society. A visit to an A&E department costs significantly more than a digital consultation. A doctor visit in a primary care center also costs about two to three times more than a digital consultation. Hence, besides the obvious positive effects for patients and doctors, digitalization is also an important way to get more treatment for the same cost to meet the demographic changes in Sweden and Europe. Specialization will support growth and productivity in Capio France Capio is well positioned to continue to drive change within the French healthcare system. Our 22 hospitals with a national presence, the core focus on medical quality and patient solutions for a rapid recovery has proven right in France. Capio is seen as a leader in driving medical change in France. Now it is time for the next step to support growth and productivity. Since 2015, we have met the price decreases in France with productivity improvements, enabled by modernization of the healthcare provided Rapid Recovery. We are now seen as the leader in implementing Modern Medicine, showing the way for French healthcare. In addition, we have during 2017 strengthened our procurement initiatives to reach savings on materials and services costs. This work will be continued. Now we start another transition, from a fully geographical organization to a specialized organization (as in Sweden) that can be more efficient in attracting patients and doctors to our Rapid Recovery offering, driving growth and synergies of scale as proven with the strong volume and productivity improvements for the hip and knee replacement business. The five largest Capio hospitals, representing more than 50% of the French net sales, are now organized under one management led by the country president. More peripheral activities within these large units will be organized separately to focus know-how exchange between the hospitals on core activities and procedures. We see opportunities to have large activities like cardiology, heart surgery and general surgery work closely together between the different geographical locations. achieve this. Certain specialties will also be gathered in separate organizations to have full focus on providing the best and most efficient care to patients in these areas of care. Projects are ongoing to upgrade and modernize the IT environments supporting production and administration to increase automation and facilitate digitalization. Strengthened procurement management is also a key initiative to improve performance through pricing, quality and logistics. The French government has adopted new legislation to improve quality, efficiency and financial sustainability of the French healthcare system. The legislation promotes new solutions to be introduced and tested in the areas of organization, digital transformation and reimbursement models. Capio will take part in these programs by presenting solutions and projects based on our achievements in Modern Medicine and Rapid Recovery in France as well as our Swedish experience improving healthcare provision and digitalization. We expect these changes to support topline growth and make us more responsive to the continued demands for efficiency and quality in care. The smaller hospitals will be focused on fewer specialties, increasing quality, productivity and volume. Some alternative partnerships may be studied with private or public players to Effects from specialization of hip and knee prosthesis surgery in France Hip and knee replacements in Capio France continued to grow during 2017, positively impacted by the use of Modern Medicine as more doctors and patients are coming to our hospitals. The average length of stay continued to decrease and the share of patients being discharged within four days increased by four percentage points compared with The number of hip and knee prosthesis surgeries provided as outpatient care continued to increase during the year. This is an example of how Capio adapts to and contributes to driving Modern Medicine as hip and knee prosthesis surgery in outpatient care, with sustained or improved quality, has only been possible in recent years due to changes in treatment methods and procedures. Hip and knee prosthesis surgery Capio France Number of in- and outpatients % 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, ,529 5,296 4,911 4, , ,939 6, , Discharged, % <= 4 days Number of procedures Provided in daycare: Number Capio AB (publ) Full year report, January December (36)

6 Measuring Modern Medicine Development of Average length of stay (AVLOS) 1 By implementing Modern Medicine, treatment times can be reduced by Rapid Recovery after treatment. This means shorter stays in hospital reducing the patient s exposure to the hospital environment and increasingly, the patient can leave the hospital already the same day as the treatment is completed. FULL YEAR AVLOS by segment, Days 2017 % % 2016 % 2015 % 2014 % Capio Nordic Capio Nordic excl. geriatrics Capio France Capio France excl. geriatrics Capio Germany Capio Germany excl. geriatrics Capio Group Capio Group excl. geriatrics AVLOS continued to be shortened in the quarter but was impacted by a higher case mix in Nordic and Germany. AVLOS in Nordic was impacted by a higher case mix for emergency patients. The Group s strategic focus on Modern Medicine giving Rapid Recovery, and Modern Management reduced AVLOS by 1.1% despite a higher case mix. Adjusted for geriatrics, the AVLOS reduction for the Group was 2.2%. Considering the higher case mix in 2017, in addition to the increase from geriatrics, the AVLOS development was well in line with the historical downward trend. 1 Refer to page 34 for definition. Capio AB (publ) Full year report, January December (36)

7 Group development Capio Group Change, % Change, % KPI; Production, productivity and resources Number of outpatients 1, , , , Number of inpatients Number of patients, knumber 1, , , , AVLOS, Days Number of employees (FTE) 13,295 12, ,314 12, Income statement Net sales outpatients 2,153 1, ,980 6, Net sales inpatients 1,674 1, ,387 6, Net sales other Net sales 4,077 3, ,327 14, Total sales growth, % Organic sales growth, % EBITDA ,114 1, Margin, % EBITA Margin, % Profit for the period Earnings per share after dilution 2, SEK October December 2017 Organic sales growth was driven by volume growth and a higher case mix, while calendar effects impacted negatively on a net basis (one working day less than in Q in Nordic and Germany and one more day in France). Price growth remained limited, mainly following the French price reduction. Outpatient volume growth was positive in all segments, while inpatient volume growth in the Nordic and French segments did not fully compensate for lower volumes in Germany. Acquisitions impacted total sales growth positively. Result growth was positively impacted by the French development, supported by the staff and cost reduction program that was implemented during autumn and the positive calendar effect. The positive development was also driven by a continued good performance in Nordic, supported by acquisitions performing in line with expectations and a positive trend change following the initiated actions in the primary care activities in Stockholm. The result development was negatively impacted by the general price reduction in France (MSEK -13) and the performance of the German operations with lower inpatient volumes and insufficient cost adjustment. AVLOS decreased significantly during the quarter, mainly related to improvements in France and Germany. FTE growth was mainly driven by the acquisitions. The operating result (EBIT) included amortization on surplus values of MSEK -28 (-19) and restructuring and other nonrecurring items and acquisition related costs of MSEK 1 (-11). The increase in amortizations was mainly related to the recent acquisitions in Sweden and Denmark. Restructuring and other non-recurring items were mainly related to restructuring activities. The profit for the period included net financial items of MSEK -28 (-24) and income tax of MSEK -21 (7). Last year included a revaluation of deferred income taxes in France amounting to MSEK 26. The effective income tax rate was 12% (5%). Earnings per share (EPS) after dilution was SEK 1.09 (0.96). The development was mainly impacted by the higher operating result, partly offset by the higher income tax. January December 2017 Organic sales growth was driven by volume growth in Nordic and France and a higher case mix in all segments. Price growth was limited and impacted by the price reductions in France comprised three working days less than 2016 in Nordic and Germany and one working day less in France. Outpatient volume growth was positive in all segments, while inpatient growth in the Nordic segment did not compensate for the lower volumes in France and Germany. Acquisitions impacted total sales growth positively. The result development was negatively impacted by the general price reductions (MSEK -66) and the lower than expected private market growth in France during Some French hospitals were late adjusting their production resources and productivity to the current market conditions and the actions taken during spring and summer 2017 have impacted positively from Q The Nordic development was solid, supported by acquisitions performing in line with expectations, but also from a continued positive organic development. In terms of productivity, AVLOS continued to be shortened but was impacted by the higher case mix. FTE growth was driven by the acquisitions but remained too high in France as the initiated actions are not yet fully visible in the numbers. The operating result (EBIT) included amortization on surplus values of MSEK -107 (-75) and restructuring and other nonrecurring items and acquisition related costs of MSEK -12 (-11). The increase in amortizations was related to acquisitions. Restructuring and other non-recurring items were mainly related to restructuring activities and transaction costs related to the acquisitions made. The profit for the period included net financial items of MSEK -102 (-96) and income tax of MSEK -66 (-55). The effective income tax rate was 15% (12%). Earnings per share (EPS) after dilution was SEK 2.62 (2.86). The EPS decrease was mainly due to increased amortizations on surplus values and higher income tax. 1 Attributable to parent company shareholders. 2 Refer to note 2 for calculation of earnings per share (before and after dilution). Capio AB (publ) Full year report, January December (36)

8 Development in the segments Capio Nordic Change, % Change, % KPI; Production, productivity and resources Number of outpatients 1, , , , Number of inpatients Number of patients, knumber 1, , , , AVLOS, Days Number of employees (FTE) 6,554 5, ,556 5, Income statement Net sales outpatients 1,647 1, ,120 5, Net sales inpatients ,399 2, Net sales other Net sales 2,324 2, ,695 7, Total sales growth, % Organic sales growth, % EBITDA Margin, % EBITA Margin, % Cash flow Net capital expenditure In % of net sales Capio Nordic October December 2017 Organic sales growth was driven by volume growth in the contract businesses and specialist free healthcare choice in Sweden. Organic sales growth was positively impacted by a higher case mix while one working day less than in Q impacted growth negatively. The number of patient visits and total sales growth was positively impacted by acquisitions. Nordic s result in Q4 was positively impacted by the initiated actions in the primary care activities in Stockholm, Sweden. The actions have turned the negative trend and in combination with continued good performance in other business areas, supported by acquired businesses performing in line with expectations, the Nordic segment delivered a continued solid improvement. AVLOS during the quarter decreased compared to 2016 despite a higher case mix, mainly related to productivity improvements in the specialist business. The number of FTEs increased mainly from the acquisitions. Net capital expenditure (net capex) increased compared to Q due to a combination of expansion projects and timing effects. Capio Nordic January December 2017 Organic sales growth was driven by volume growth in the contract businesses and specialist free healthcare choice in Sweden. Organic sales growth was also positively impacted by a higher case mix while three working days less than in 2016 impacted growth negatively. The number of patient visits and total sales growth was positively impacted by acquired businesses. The result development during 2017 was positively impacted by the acquired businesses, which performed in line with expectations, and from an organic improvement. Despite a higher case mix, AVLOS decreased compared to 2016, mainly from productivity improvements in the specialist business. The number of FTEs increased mainly following the acquisitions. Specialization in the form of bringing all orthopedic business in Sweden into one organization has had a positive effect on organic sales growth and productivity in 2017, especially during the second half of the year. Also during 2017, the primary care business in Sweden has launched digital visits and better support for physical visits, which will be a key driver for improved availability for patients as well as to drive patient growth in coming periods. Net capital expenditure (net capex) in 2017 was mainly related to maintenance but with an increase of expansion capex in Q The total capex spend also increased due to acquisitions. Quarterly development from the fourth quarter 2016 to the fourth quarter 2017 Net sales and sales growth (RTM) EBITDA and margin (RTM) EBITA and margin (RTM) MSEK % 9, MSEK % MSEK % , , , , ,000 Q4 Q1 Q2 Q3 Q Q4 Q1 Q2 Q3 Q Q4 Q1 Q2 Q3 Q Net sales Organic sales growth, % Total sales growth, % EBITDA Margin, % EBITA Margin, % Capio AB (publ) Full year report, January December (36)

9 Development in the segments (cont.) Capio France Change, % Change, % KPI; Production, productivity and resources Number of outpatients Number of inpatients Number of patients, knumber AVLOS, Days Number of employees (FTE) 5,494 5, ,490 5, Income statement Net sales outpatients ,671 1, Net sales inpatients ,006 2, Net sales other Net sales 1,434 1, ,435 5, Total sales growth, % Organic sales growth, % EBITDA Margin, % EBITA Margin, % Cash flow Net capital expenditure In % of net sales Capio France October December 2017 Organic sales growth improved compared to the first nine months, positively impacted by higher volumes. The volume increase was partly explained by one more working day during the quarter including improved timing of holidays at the end of the year compared to last year, but also by an improved underlying volume growth. Organic sales growth was negatively impacted by the general price reduction of 2.09% from March 1, 2017; in total impacting net sales and results in the quarter by MSEK -13, corresponding to -1.0% of medical sales (including a tariff payback of MSEK +6). At comparable exchange rates total sales growth was 2.7% (0.4). The Q4 margin increase in France was driven by higher organic sales growth and the staff and cost reduction program that was implemented during the second half of Q included one more working day including improved timing of holidays at the end of the year, but also adjusted for the calendar effect, the margin improved compared to Q The development of the hospitals that were late adapting to the lower volume growth during the first nine months improved during Q4. The result was negatively impacted by the lower price level (MSEK -13). Net capex in the quarter was high, impacted by timing effects and a refurbishment project in one of the hospitals. Capio France January December 2017 Organic sales growth was in line with market growth, but negatively impacted by one working day less than 2016 in combination with a lower than expected private market growth. Latest available market statistics indicate that the development for private providers has slightly improved in recent months. The organic sales growth and result was negatively impacted by MSEK -66 from the general price reductions in 2017 and 2016, corresponding to -1.4% of medical sales. At comparable exchange rates total sales growth was 0.6% (3.0). The result was negatively impacted by the lower price level (MSEK -66) and the lower than expected private market growth during the year. Some hospitals were late adjusting production resources and productivity to the lower volume growth, and were the main reason for the negative result development during The development of these hospitals improved during Q4 due to the staff and cost reduction program in combination with improved sales growth. The new specialized organization will be a driver for attracting additional patients and doctors to our Rapid Recovery offering (as proven for the hip and knee replacement business). This combined with our efforts and focus on more efficient procurement and improved IT support will drive growth and synergies of scale over time. Net capex was mainly related to maintenance and in line with last year. Quarterly development from the fourth quarter 2016 to the fourth quarter 2017 Net sales and sales growth (RTM) EBITDA and margin (RTM) EBITA and margin (RTM) MSEK % 6,000 5 MSEK % MSEK % , , , ,000 1,000 Q4 Q1 Q2 Q3 Q Net sales Organic sales growth, % Total sales growth, % Q4 Q1 Q2 Q3 Q EBITDA Margin, % Q4 Q1 Q2 Q3 Q EBITA Margin, % 4 3 Capio AB (publ) Full year report, January December (36)

10 Development in the segments (cont.) Capio Germany Change, % Change, % KPI; Production, productivity and resources Number of outpatients Number of inpatients Number of patients, knumber AVLOS, Days Number of employees (FTE) 1,202 1, ,224 1, Income statement Net sales outpatients Net sales inpatients , Net sales other Net sales ,197 1, Total sales growth, % Organic sales growth, % EBITDA Margin, % EBITA Margin, % Cash flow Net capital expenditure In % of net sales Capio Germany October December 2017 Organic sales growth was negatively impacted by lower inpatient volumes and one working day less than in Q However, a significantly higher case mix and slightly higher prices impacted growth positively. The lower inpatient volumes were mainly due to the divestment of the hospital in Weissenburg and lower production in some of the general hospitals. Outpatient volumes were positively impacted by the acquisition of the eye surgery clinic in Bremen and additional outpatient authorizations. The Bremen clinic has a higher price per outpatient treatment than the Capio Germany average, which impacted outpatient sales growth positively. At comparable exchange rates total sales growth was -1.6% (5.5). Result and margin were negatively impacted by the lower inpatient volumes. The negative result development should also be seen in relation to a very strong Q in terms of sales and result. The AVLOS development was impacted by a significantly higher case mix. The number of FTEs decreased following productivity improvements combined with the net effect of the divestment and acquisition made during Net capex was mainly related to maintenance and the finalization of a refurbishment project in one of the general hospitals. Capio Germany January December 2017 Organic sales growth was positively impacted by higher outpatient volumes, higher case mix and slightly higher prices, while it was negatively impacted by three working days less than in 2016 and lower inpatient volumes. The lower inpatient volumes were mainly due to the divestment of the hospital in Weissenburg and insufficient short-term doctor capacity in some of the specialist clinics. Outpatient volumes were positively impacted by the acquisition in Bremen (consolidated from April 1, 2017) and additional outpatient authorizations. The Bremen clinic has a higher price per outpatient treatment than the Capio Germany average, which impacted outpatient sales growth positively. At comparable exchange rates total sales growth was 0.4% (1.1). Result and margin were negatively impacted by the lower inpatient volumes, and a negative net effect from the acquisition/divestment. Actions are being taken both to improve volumes and to adjust costs. This is also made to mitigate the coming price reduction concerning parts of the specialized business in The AVLOS development was impacted by the significantly higher case mix and growth of treatments with longer stays (e.g. geriatrics). Case mix adjusted AVLOS continued to be shortened. The number of FTEs was in line with last year. Net capex was mainly related to maintenance and the finalization of a refurbishment project in one of the general hospitals. Quarterly development from the fourth quarter 2016 to the fourth quarter 2017 Net sales and sales growth (RTM) EBITDA and margin (RTM) EBITA and margin (RTM) MSEK % 1, MSEK % MSEK % , , Q4 Q1 Q2 Q3 Q Q4 Q1 Q2 Q3 Q Q4 Q1 Q2 Q3 Q Net sales Organic sales growth, % Total sales growth, % EBITDA Margin, % EBITA Margin, % Capio AB (publ) Full year report, January December (36)

11 Cash flow Capio Group Net debt opening -3,704-3,149-2,872-2,936 EBITA Capital expenditure Divestments of fixed assets Net capital expenditure In % of net sales Add-back depreciation Net investments Change in net customer receivables Other changes in operating capital employed Operating cash flow Cash conversion, % Income taxes paid Free cash flow before financial items Cash conversion, % Net financial items paid Free cash flow after financial items Cash conversion, % Acquisitions and divestments of companies Received/paid restructuring and other non-recurring items Shareholder transactions Net cash flow Cash conversion, % Other items Net debt closing -3,691-2,872-3,691-2,872 Cash flow October December 2017 Capex was high during the quarter, impacted by timing effects of maintenance capex and some expansion projects in Nordic and France supporting business growth. Divestments were related to non-core assets in France. Depreciation increased to last year following higher capex and recent acquisitions. Changes in net customer receivables and other operating capital employed were in line with Q and impacted by normal seasonal effects. The increase of income tax payments were mainly related to recent acquisitions. The outflow from acquisitions was related to recent acquisitions and the investment of MSEK 49 in e-health provider Doctrin AB. Received/paid restructuring and other non-recurring items in the quarter were mainly related to the ongoing projects in France and settlement of items from prior periods. Other items affecting net debt were mainly related to changes in exchange rates and some new finance leases. The change to Q was mainly related to changes in exchange rates. Cash flow January December 2017 Capex was mainly maintenance related and in line with 2016 due to higher capex during Q Divestments were related to some non-core assets in France. Depreciation increased compared to last year following higher capex during 2016 and 2017 and recent acquisitions. The change in net customer receivables was impacted by higher activity and a slightly higher DSO. The increase of income tax payments were mainly related to recent acquisitions and higher tax installments in France. The outflow from acquisitions was mainly related to the seven acquisitions made during 2017 and the investment of in total MSEK 62 in e-health provider Doctrin AB. The outflow was partly offset by proceeds from the divestment of the hospital in Weissenburg (Germany). Received/paid restructuring and other non-recurring items were mainly related to the ongoing development projects in France including divestments proceeds and settlement of items from prior periods. Shareholder transactions mainly comprised the dividend paid. The change in other items affecting net debt compared with last year was mainly related to changes in exchange rates. Quarterly development from the fourth quarter 2016 to the fourth quarter 2017 Net capex and in % of net sales (RTM) Operating CF and cash conversion (RTM) Free CF after fin. items and cash conv. (RTM) MSEK % Q4 Q1 Q2 Q3 Q Net capital expenditure In % of sales MSEK % Q4 Q1 Q2 Q3 Q Operating cash flow Cash conversion, % MSEK % Q4 Q1 Q2 Q3 Q Free cash flow after fin. items Cash conversion, % Capio AB (publ) Full year report, January December (36)

12 Capital employed and financing Capio Group 31 Dec 31 Dec Operating fixed assets (excl. real estate) 1,640 1,414 Net customer receivables 1,474 1,263 Other operating assets and liabilities -2,106-1,934 Operating capital employed 1 1, In % of net sales Operating real estate Operating capital employed 2 1,779 1,554 In % of net sales Other capital employed 7,668 6,790 Capital employed 9,447 8,344 Return on capital employed, % Net debt 3,691 2,872 Financial leverage Equity 5,756 5,472 Total financing 9,447 8,344 Capital employed as of December 31, 2017 The increase in operating fixed assets compared with December 31, 2016 was mainly related to consolidation of the recent acquisitions. The increase in net customer receivables was mainly due to higher activity in December 2017 compared with December 2016, effects from acquisitions made and a slightly higher DSO. The change in other operating assets and liabilities was mainly due to acquisitions. The decrease of operating real estate was impacted by divestments of non-core assets in France. Compared with December 31, 2016, other capital employed was impacted by effects from completed acquisitions, increasing goodwill and acquisition related intangible fixed assets by MSEK 1,011. The return on capital employed was 7.0% (7.7 as of December 31, 2016), negatively impacted by effects from acquisitions (the seven acquisitions during 2017 were not yet fully contributing to the RTM EBITA). Financing as of December 31, 2017 Net debt increased compared with December 31, 2016, mainly impacted by the net effect from acquisitions and divestments of MSEK 785 and the dividend paid of MSEK 127. The visible financial leverage increased from 2.7x to 3.3x compared with December 31, 2016, impacted by acquisitions not yet fully contributing to the RTM EBITDA. The financing facility that was set in place in conjunction with the IPO contains two financial covenants; one covenant with a maximum financial leverage and one covenant with a minimum interest cover. As of December 31, 2017 Capio was in compliance with and had satisfactory headroom under both covenants. Quarterly development from the fourth quarter 2016 to the fourth quarter 2017 Operating capital employed and in % of net sales Capital employed and ROCE Net debt and financial leverage MSEK % MSEK % MSEK x 1, , , , , , ,600 1, ,000 7, , , , , ,300 Q4 Q1 Q2 Q3 Q4 9 5,000 Q4 Q1 Q2 Q3 Q4 5 2,000 Q4 Q1 Q2 Q3 Q Operating capital employed In % of net sales Capital employed Return on capital employed Net debt Financial leverage Capio AB (publ) Full year report, January December (36)

13 Significant events during the period Acquisitions, January December 2017 Acquisition of the German eye specialist clinic Augenklinik Universitätsallee (Germany) As announced on March 24, 2017, Capio has acquired 100% of the shares in Medizinisches Versorgungszentrum Universitätsallee GmbH, including subsidiaries ( Augenklinik Universitätsallee ). The clinic is located in Bremen and specialized in ophthalmology and offers complex treatments of all parts of the eye, including cataract surgery. Net sales in 2016 were MEUR 9.6 (MSEK 91). The acquisition of Augenklinik Universitätsallee represents a new specialty for Capio in Germany and strengthens the healthcare offering of the German operations. Enterprise value was approximately MEUR 10, corresponding to about MSEK 95. The acquisition also includes an agreed possible future earn-out of maximum MEUR 3 based on the future financial performance. The acquisition is included in Capio from April 1, The acquisition contributed positively to Capio s earnings during Acquisition of the Swedish healthcare group Backa Läkarhus (Sweden) As announced on January 3, 2017, Capio has acquired 100% of the shares in Backa Läkarhus AB ( Backa ). Backa now operates ten primary care centers and nine rehabilitation centers in Region Västra Götaland, and one light A&E center in Region Halland. In total, Backa has c. 80,000 listed patients, and in 2016 net sales were MSEK 370. Enterprise value was MSEK 300 and yearly synergy effects of in total approximately MSEK 10 are expected to be realized in 2017 and The acquisition of Backa complements and strengthens Capio s presence and medical offering within primary care in the western parts of Sweden. The acquisition is included in Capio from March 1, The acquisition contributed positively to Capio s earnings during Closing of the acquisition of the Danish hospital group CFR Hospitaler (Denmark) In December 2016, Capio agreed to acquire 70% of the shares in CFR Hospitaler A/S ( CFR ) and the acquisition was closed during January Enterprise value was MDKK 199 (MSEK 253) for 70% of CFR and Capio has the option to acquire (and the non-controlling interest has an option to sell) the remaining 30% of the shares after two years. The acquisition is included in Capio to 100% from January 1, 2017, without recognition of any non-controlling interest as the probability is high that the option will be exercised. Estimated enterprise value for 100% of CFR is MDKK 344 (MSEK 443). The acquisition contributed positively to Capio s earnings during Selected financials for acquisitions closed as of December 31, 2017 CFR Backa Other 4 Total Share of voting rights and equity, % Date of consolidation January 1 March 1 Capio segment Nordic Nordic Country of operation Denmark Sweden Enterprise value Yearly net sales (2016) Contribution to net sales since consolidation Contribution to operating result (EBIT) since consolidation Goodwill Acquisition related intangible assets The acquired share is 70%, with an option for Capio to acquire (and the non-controlling interest has an option to sell) the remaining 30% after two years. Since it is highly probable that the option to acquire the remaining shares will be exercised, the company is consolidated to 100% from January 1, 2017, without recognition of any non-controlling interest. 2 Estimated enterprise value for 100% of the shares in CFR Hospitaler A/S. 3 Goodwill and acquisition related intangible assets related to 100% of the shares. 4 Including the acquisitions of Augenklinik Universitätsallee, Globen, OPA Privathospital, Orbita and Viborg Privathospital. The acquired share for Orbita is 51%, with an option for Capio to acquire (and the non-controlling interest has an option to sell) the remaining 49% after four years. Since it is highly probable that the option will be exercised, Orbita is consolidated to 100% from October 2, Including negative goodwill of MSEK 5 recognized as a gain in profit and loss under other non-recurring items. Purchase price allocations are still preliminary. For more information about the consolidated acquisitions refer to note 5. Other significant events, January December 2017 Tariffs for healthcare reimbursement in France 2017 On March 8, 2017 the French government announced that tariffs to reimburse healthcare were being decreased by 2.09% from March 1, 2017, compared to 2016 tariff levels. The price reduction was in line with Capio s expectations for the French market for Capio s impact of the price reduction, calculated based on the price change per treatment and last year s case mix, is in line with the 2.09% price reduction communicated earlier. The new prices are valid until February 28, Capio AB (publ) Full year report, January December (36)

14 Other events during the period Capio continues to invest in digital healthcare As announced on December 11, 2017, Capio has further strengthened its involvement in the development of digital healthcare solutions by investing MSEK 49 in the new share issue of MSEK 100 that was announced by the e-health provider Doctrin on the same day. By investing, Capio is participating in the development of new digital applications based on artificial intelligence, increasing efficiency in healthcare provision and improving patient experience. Capio has previously invested MSEK 13 in Doctrin and following the new share issue, the Group s total investment is MSEK 62. The minority share is not expected to have any significant financial impact for the Group in Acquisition of Viborg Privathospital (Denmark) As announced on October 16, 2017, Capio has acquired Viborg Privathospital and MR Scanner Aarhus in an asset deal. The clinic in the city of Viborg is primarily specialized in orthopedics and general surgery, while the operations at MR Scanner Aarhus comprise radiological examinations. Total net sales in 2017 were about MDKK 36. The acquisition is complementary to Capio s existing operations on Jutland and some synergies are expected with the units in Skørping and Aarhus. The purchase price was MDKK 24. The acquisition is included in Capio from November 1, 2017, and has not significantly impacted the Group s earnings in Acquisition of a Norwegian eye specialist clinic (Norway) As announced on September 29, 2017, Capio has acquired 51% of the shares in Orbita Øyelegesenter AS, including subsidiaries ( Orbita ) with an option for Capio to acquire (and the noncontrolling interest has an option to sell) the remaining 49% of the shares after four years. The clinic is specialized in ophthalmology and offers a broad range of eye treatments, including cataract and strabismus surgery. The acquisition of Orbita represents a new specialty for Capio in Norway and strengthens the healthcare offering of the Norwegian operations. Net sales in 2017 were about MNOK 20. The acquisition is included in Capio from October 2, 2017 to 100%, since the probability is high that the option to buy remaining 49% of the shares will be exercised. The acquisition has not significantly impacted the Group s earnings in Acquisition of a Danish orthopedic specialist clinic in Aarhus (Denmark) As announced on July 3, 2017, Capio has acquired 100% of the shares in GHP OPA Privathospital Aarhus A/S ( OPA Privathospital ). The clinic is primarily specialized in orthopedic surgery and is well-known for spine surgery, children orthopedics and sports injuries. The acquisition strengthens Capio s orthopedic offering in Denmark and expands its footprint to four out of five Danish health regions. In 2016, OPA Privathospital had net sales of MDKK 29. The acquisition is included in Capio from June 30, 2017 and has not significantly impacted the Group s earnings in Acquisition of the Swedish eye specialist clinic Globen Ögonklinik (Sweden) As announced on April 24, 2017, Capio has acquired 100% of the shares in Globen Ögonklinik (PanSyn Sweden AB, including subsidiaries) ( Globen ). The clinic is specialized in ophthalmology and offers complex eye treatments, including cataract surgery, RLE (Refractive Lens Exchange) and refractive laser treatments. Net sales in 2016 were MSEK 75. The acquisition further strengthens Capio s healthcare offering within ophthalmology and expands the Group s footprint in the Nordics. Enterprise value was MSEK 75 and the acquisition is included in Capio from May 31, The acquisition has not significantly impacted the Group s earnings in Psychiatric contract in Stockholm (Sweden) In September 2016, it was announced that Capio had been awarded a new contract and lost one of the current contracts in Stockholm. Capio appealed the lost contract and the current contract was extended. In April 2017, the Administrative Court rejected the appeal and Capio has decided to end the process and not appeal further. Hence, the psychiatric contract was handed over to a new provider from February 1, The lost contract is not expected to significantly impact the Group s earnings development going forward. Capio establishes a Swedish Commercial Paper Program As announced on March 20, 2017, Capio has established an MSEK 2,000 Swedish Commercial Paper Program with four banks, of which DNB is acting as arranger and dealer and SEB, Danske Bank, and Nordea are acting as dealers. The Commercial Paper Program is mainly used for short-term financing of working capital needs and is a complement to the Group s MEUR 500 Multicurrency Term and Revolving Facilities Agreement that was established in connection with the IPO in Divestment of Klinik an der Weissenburg (Germany) On February 28, 2017, Capio divested the hospital in Weissenburg, including the rehabilitation and nursing activities, as it was not part of the core business of Capio Germany. Enterprise value was MSEK 32 (MEUR 3.3) and in 2016 the hospital contributed MSEK 67 to the Group s net sales. The divestment has not significantly impacted the Group s earnings development Sale of shares in Capio AB (publ) by Apax Europe On February 24, 2017 Apax Europe divested its total remaining shareholding in Capio AB of 15,176,793 shares (10.75% of the votes) to institutional investors. Sale of shares in Capio AB (publ) by Nordic Capital On May 11, 2017 Nordic Capital divested its total remaining shareholding in Capio AB of 26,605,644 shares (18.85% of the votes) to institutional investors. Capio AB (publ) Full year report, January December (36)

15 Significant events after the period At the release of this full year report there were no significant events after the period to be reported. Other events after the period Amend and extend of Revolving Credit Facility As announced on January 17, 2018, Capio has completed an amendment and extension of its MEUR 235 revolving credit facility (RCF), which is part of the total Group financing facility of MEUR 500. The agreement includes a 2.5 year extension as well as an increase of the RCF of MEUR 108. All other terms have remained unchanged. The agreement will not significantly impact the Group s financial items in Capio awarded contract to run specialist care in Motala In January 2018, it was announced that Capio has been awarded a new contract to run the orthopedic, general surgery and anesthesia operations at the hospital in Motala, Sweden. Subject to the appeal period, expiring on February 9, Capio is expected to sign a four year agreement with Region Östergötland, with an option for the region to extend the contract for up to another four years, effective from October 1, The agreement is not expected to significantly impact the Group s earnings in Risks and uncertainties Political, operational and financial risks The Group is exposed, through its international operations, to a variety of risks that may give rise to fluctuation in profit/loss, other comprehensive income and cash flow. Key areas of risk encompass political, operational and financial risks. Various policies govern the management of key risks. Refer to the Capio Annual Report 2016 for a further description of risks and risk management. Seasonal variations The Group s net sales and operating result fluctuate across the year, mainly due to lower elective (planned) activity during the summer period and lower activity during the holiday season at the end of the year. Operations are also impacted by e.g. Easter holiday and bank holidays, whichever could occur in different months/quarters in different years. The Group s cash flow is normally stronger in the second half of the year, impacted by some seasonal effects including improvements in working capital. The above factors should be taken into consideration when making assessments on the basis of interim financial information. Capio AB (publ) Full year report, January December (36)

16 Condensed financial reports Condensed statement of comprehensive income Capio Group Net sales 4,077 3,725 15,327 14,069 Direct costs -3,340-3,079-12,763-11,697 Gross result ,564 2,372 Administrative expenses ,905-1,728 EBITA Amortization on surplus values Restructuring and other non-recurring items and acquisition related costs Operating result (EBIT) Net interest Other financial items Profit after financial items Income tax Profit for the period EBITDA ,114 1,061 Other comprehensive income that will be reclassified into profit/loss: Hedge effect in foreign investment Translation differences Revaluation reserve, convertible debenture loans Income taxes related to other comprehensive income Other comprehensive income that will be reclassified into profit/loss, net of income tax Other comprehensive income that will not be reclassified into profit/loss: Revaluation of defined benefit plans Income taxes related to other comprehensive income Other comprehensive income that will not be reclassified into profit/loss, net of income tax Total comprehensive income for the period, net of income tax Profit attributable to: Parent Company shareholders Non-controlling interest Total comprehensive income attributable to: Parent Company shareholders Non-controlling interest Earnings per share 1 : Earnings per share before dilution, SEK Earnings per share after dilution, SEK Refer to note 2 for calculation of earnings per share (before and after dilution). Capio AB (publ) Full year report, January December (36)

17 Condensed financial reports (cont.) Condensed balance sheet Capio Group Dec 31 Dec Intangible assets 8,210 7,105 Tangible fixed assets 2,465 2,358 Financial fixed assets Total fixed assets 11,387 10,092 Inventories Accounts receivables - trade Short-term investments and interest-bearing receivables 2 2 Cash and cash equivalents Other current assets 1,219 1,157 Total current assets 2,660 2,440 Total assets 14,047 12,532 Equity attributable to Parent Company shareholders 5,731 5,443 Equity attributable to non-controlling interest Total equity 5,756 5,472 Provisions for employee benefits Deferred income tax liabilities Long-term liabilities, interest-bearing 3,203 3,162 Long-term liabilities and provisions, non-interest-bearing Total long-term liabilities and provisions 4,554 4,230 Current liabilities, interest-bearing Accounts payable trade Current income tax liabilities 2 27 Accrued expenses and prepaid income 1,586 1,437 Other current liabilities Total current liabilities 3,737 2,830 Total liabilities, provisions and shareholders equity 14,047 12,532 Capio AB (publ) Full year report, January December (36)

18 Condensed financial reports (cont.) Condensed statement of cash flow Capio Group Operating result (EBIT) Reversal of depreciations/amortizations and impairments Items not affecting cash flow Interest received and paid Taxes paid Cash flow from operating activities before changes in working capital Change in net working capital Cash flow from operating activities Acquisition of companies Divestment of companies Payment to non-controlling interest Acquisition/divestment of financial fixed assets Investments in tangible and intangible fixed assets Divestments of tangible fixed assets Cash flow from investment activities , Increase/decrease in external loans Amortizations Dividend Transaction costs for the IPO and new share issue Cash flow from financing activities Cash flow from operations Currency differences in cash and cash equivalents Change in cash and cash equivalents Opening balance, cash and cash equivalents Closing balance, cash and cash equivalents Related to capital gains. Capio AB (publ) Full year report, January December (36)

19 Condensed financial reports (cont.) Changes in shareholders equity Capio Group Share capital Other contributed capital Other reserves Translation reserve Retained earnings Noncontrolling interest Shareholders' equity Opening balance at January 1, , ,001 Profit for the year Other comprehensive income Total comprehensive income Dividend Dividend to non-controlling interest -2-2 Change in non-controlling interest 6 6 Total transactions with shareholders Closing balance at December 31, , ,472 Share capital Other contributed capital Other reserves Translation reserve Retained earnings Noncontrolling interest Shareholders' equity Opening balance at January 1, , ,472 Reclassification Profit for the year Other comprehensive income Total comprehensive income Dividend Dividend to non-controlling interest Change in non-controlling interest Total transactions with shareholders Closing balance at December 31, , ,756 1 Reclassification is mainly related to historical actuarial gains and losses from defined benefit plans. Capio AB (publ) Full year report, January December (36)

20 Parent Company Condensed statement of comprehensive income Parent Company Net sales Gross result Administrative expenses Operating profit/loss Financial items Profit/loss after financial items Income tax Profit/loss for the period Other comprehensive income Total comprehensive income for the period, net of income tax Condensed balance sheet Parent Company Dec 31 Dec Fixed assets 4,074 4,012 Current assets Total assets 4,928 4,935 Equity 4,762 4,768 Liabilities Total equity and liabilities 4,928 4,935 The Group s Parent Company, Capio AB (publ), is not involved in any operating activities. It only provides group management functions. October December 2017 The Parent Company s net sales and gross result in the quarter derive from management fees charged to subsidiaries. The administrative expenses in the quarter were mainly related to personnel costs. Financial items in the quarter were related to a group contribution received (MSEK 148) and to interest costs for the convertible debenture loans issued during the third quarter January December 2017 The Parent Company s net sales and gross result in 2017 derive from management fees charged to subsidiaries. The administrative expenses were mainly related to personnel costs. Financial items were related to a group contribution received (MSEK 148) and to interest costs for the convertible debenture loans issued during the third quarter As of December 31, 2017 The Parent Company s fixed assets as of December 31, 2017 amounted to MSEK 4,074 (4,012 as of December 31, 2016) and mainly comprised shares in subsidiaries. The increase compared to December 31, 2016 was mainly explained by an investment in Doctrin AB. Current assets as of December 31, 2017 amounted to MSEK 854 (923 as of December 31, 2016) and mainly comprised of cash and cash equivalents and a receivable related to the group contribution received. The change in current assets compared to December 31, 2016 was mainly explained by the group contribution received (MSEK 148), the payment of dividend to shareholders during the second quarter 2017 (MSEK -127) and the investment in Doctrin AB of MSEK 62. Shareholders equity as of December 31, 2017 amounted to MSEK 4,762 (4,768 as of December 31, 2016). The change compared to December 31, 2016 was mainly a net of the comprehensive income for the period and the dividend paid. The Parent Company s liabilities amounted to MSEK 166 as of December 31, 2017 (167 as of December 31, 2016) and were mainly related to the convertible debenture loans and personnel related accruals. Capio AB (publ) Full year report, January December (36)

21 Notes 1. Accounting principles All amounts in the full year report are stated in millions of Swedish kronor (MSEK) if not else stated. This report has been prepared in accordance with IAS 34 Interim Financial Reporting and applicable rules in the Swedish Annual Accounts Act. Capio s consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union, the Swedish Annual Accounts Act and the Swedish Financial Reporting Board s standard RFR 1 Supplementary Accounting Rules for Groups. Disclosures in accordance with IAS 34.16A appear in addition to the interim financial statements also in other parts of the interim report. The applied accounting principles are available in Capio s Annual Report 2016 and also on the Group s website The Parent Company s financial statements are prepared in accordance with chapter nine of the Swedish Annual Accounts Act and the Swedish Financial Reporting Board s standard RFR 2 Accounting for Legal Entities. Effects of amended and revised IFRS 2017 or later A number of newly issued and changed IFRS have yet to be made effective and have therefore not been applied in the Group s consolidated financial statements. IFRS that have the potential to affect the Group s consolidated financial statements are listed below. IFRS 9 Financial Instruments IFRS 9 encompasses the accounting standards for financial assets and liabilities, and replaces IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 will be applied for annual periods beginning on or after January 1, The implementation of IFRS 9 will, in summary, cause the following changes to the classification and measurement of financial instruments: Holdings of equity instruments have historically been reported at cost, but will in accordance with IFRS 9, be valued at their fair value through profit and loss or other comprehensive income. The revaluation of holdings to fair value will have no effect since the reported value does not deviate significantly from the fair value. In accordance with IFRS 9, a credit risk reserve should be booked based on expected credit losses. The implementation of a model that takes into account the expected credit loss will not result in any change in the value of the reserve. This is an effect of the fact that Capio historically has included a variable of expected credit losses in the reserve. Based on the above the Group can conclude that the total effect from IFRS 9 in equity as of January 1, 2018 will be MSEK 0. IFRS 15 Revenue from Contracts with Customers IFRS 15 will be effective for annual periods beginning on or after January 1, 2018 and replaces all existing requirements with regards to revenue recognition with a new model for the recognition of revenue. The standard is based on the principle that revenue should be recognized when the control over delivered goods or services has been transferred from the seller to the customer. The Group has chosen to adopt the new standard as of January 1, 2018 in accordance with the transition option of modified retrospective application. During 2017, the Group has evaluated the impact from the new accounting principle on the consolidated financial statements. The evaluation has been made by identifying and analyzing essential customer contracts for the Group companies based on the fivestep model presented in IFRS 15. Capio is applying the same business model in all segments with minor differences and the single most important performance obligation is to provide healthcare services to patients. Hence, the identified effect of implementing IFRS 15 is the same independent of segment. As part of our performed work we have concluded that the main revenue streams are outpatients, inpatients and other. Other revenue is mainly small services performed and delivered in association to the medical care. Currently the revenue for outpatients is recognized at the point in time when the healthcare is provided and for inpatients the revenue is recognized over time. Revenue is recognized to the amount that is expected to be received in exchange for the delivered healthcare services. The transaction price is based on tariffs (fee for services or bundled payments) or capitation (fixed fee/patient) for the services performed for all segments. For contracts that include price adjustments such as production caps, service guarantees or reimbursements, revenue is recognized initially when there is no risk for revenue adjustment in the next period. Based on the above the Group can conclude that IFRS 15 will not cause any quantifiable effect in equity as of January 1, However, there will be an increase with regards to the disclosure requirements in annual reports as well as in interim reports from January 1, IFRS 16 Leases IFRS 16 replaces IAS 17 and will be effective for annual periods beginning on or after January 1, The Group has significant lease agreements for properties where the healthcare business is conducted, which means the implementation of IFRS 16 will have a significant effect on the Group s consolidated financial statements. The Group is currently analyzing the potential effect of IFRS 16. Other significant estimates For critical estimates and assessments, provisions and contingent liabilities refer to Capio s Annual Report If no significant events have occurred relating to the information in the 2016 Annual Report, no further comments are made in the full year report. Capio AB (publ) Full year report, January December (36)

22 Notes (cont.) 2. Earnings per share BEFORE DILUTION Average number of outstanding shares, Number 1 141,159, ,159, ,159, ,159,661 Profit for the period attributable to Parent Company shareholders net of income tax, MSEK Adjusted profit for the period attributable to Parent Company shareholders net of income tax, MSEK Earnings per share before dilution, SEK Adjusted earnings per share before dilution, SEK Total number of outstanding shares as of December 31, 2017 was 141,159,661 (all common shares). 2 Refer to definitions on page 34. AFTER DILUTION Average number of outstanding shares, Number 1 144,094, ,990, ,094, ,575,049 Profit for the period attributable to Parent Company shareholders net of income tax, MSEK Adjusted profit for the period attributable to Parent Company shareholders net of income tax, MSEK Earnings per share after dilution, SEK Adjusted earnings per share after dilution, SEK Average number of outstanding shares after dilution including effects from the convertible debenture loans issued during the third quarter Refer to definitions on page 34. Reconciliation of reported and adjusted profit BEFORE DILUTION, MSEK Profit for the period attributable to Parent Company shareholders net of income tax Amortization on surplus values Restructuring and other non-recurring items and acquisition related costs Income tax related to adjustments Adjusted profit for the period attributable to Parent Company shareholders net of income tax AFTER DILUTION, MSEK Profit for the period attributable to Parent Company shareholders net of income tax Amortization on surplus values Restructuring and other non-recurring items and acquisition related costs Income tax related to adjustments Adjusted profit for the period attributable to Parent Company shareholders net of income tax Capio AB (publ) Full year report, January December (36)

23 Notes (cont.) 3. Restructuring and other non-recurring items and acquisition related costs MSEK Divestment of operations Restructuring projects including redundancies Impairments Other Acquisition related costs Restructuring and other non-recurring items and acquisition related costs Divestment of operations in 2017 were mainly related to a capital gain from the divestment of the hospital in Weissenburg (Germany). Divestments of operations in 2016 were mainly related to ongoing structural projects in the French segment, i.e. the ongoing constructions and refurbishments of hospital facilities, whereby the Group divested the rehabilitation business in Capio Centre Bayard that resulted in a capital gain of MSEK Restructuring and impairment costs in 2017 were mainly related to the ongoing structural projects in the French segment, i.e. the ongoing constructions and refurbishments of hospital facilities as well as the upgrading of support system supporting the medical agenda including some redundancies as part of the ongoing actions. Main items that impacted 2017 were related to the ongoing projects in Lyon, Toulouse, La Rochelle and the upgrade of support systems, impairments and redundancies costs, as part of the ongoing actions, amounting to MSEK 53. Total restructuring costs as part of the ongoing actions were offset by a capital gain, related to a divestment of a property in France (MSEK 54). Restructuring items also include costs for reorganization within the Nordic and German segments amounting to MSEK 15. The activities are estimated to generate good cost savings from 2018 and beyond. Restructuring and impairment costs in 2016 were also related to the structural projects in the French segment and mainly related to the transaction in Lyon whereby the Group divested the rehabilitation business in Capio Centre Bayard and acquired the surgery business of the Clinique du Grand Large (the divestment resulted in a capital gain of MSEK 27). The upgrade of support systems, impairments and redundancies costs amounted in 2016 to MSEK 78, almost offset by a capital gain related to a divestment of a property in France (MSEK 75). In addition restructuring items included some effects related to the Nordic and German segment mainly consisting of closure costs and redundancies. 3 As of June 30, 2017, the Group acquired OPA Privathospital in Denmark that resulted in a gain (negative goodwill) of MSEK 5. Remaining items 2017 mainly relate to non-recurring external and staff items in Germany and Sweden. 4 Acquisition related costs 2017 amounted to MSEK 17 and refers to transaction cost in connection with the Group s acquisition of operations. 4. Financial instruments In terms of financial assets and liabilities fair value is deemed to be approximately equal to their book values. Derivatives are reported as level 2 and used for the purpose of hedging interest rates. The derivatives were valued using the mid-point of the yield curve prevailing on the reporting date and represent the net present value of the difference between the contracted rate and the valuation rate. Any change in the fair value of the interest rate cap transactions is recognized in the income statement and amounted to MSEK -2 as of December 31, The table discloses the portion of the market value arising from future changes in market interest rates. 31 Dec Interest rate caps (Options) -2-2 Capio AB (publ) Full year report, January December (36)

24 Notes (cont.) 5. Acquisitions and divestments of operations Acquisitions during 2017 CFR Hospitaler A/S Share of voting rights and equity % Backa Läkarhus AB Other 4 Total Acquired net assets 2 : Capital employed Net debt Acquired net assets (excluding acquisition related intangible assets) Acquisition related intangible assets Deferred income tax Goodwill Total purchase price ,014 Outstanding purchase price less acquired cash -327 Payment related to acquisition from previous years 16 Cash flow effect of acquisitions 703 Contribution to Group s net sales and operating result: Net sales Operating result (EBIT) The acquired share is 70%, with an option for Capio to acquire (and the non-controlling interest has an option to sell) the remaining 30% after two years. Since it is highly probable that the option to acquire the remaining shares will be exercised, the company is consolidated to 100% from January 1, 2017, without recognition of any non-controlling interest. 2 Purchase price allocations are still preliminary. 3 Goodwill and acquisition related intangible assets related to 100% of the shares. 4 Including the acquisitions of Augenklinik Universitätsallee, Globen, OPA Privathospital, Orbita and Viborg Privathospital. The acquired share for Orbita is 51%, with an option for Capio to acquire (and the non-controlling interest has an option to sell) the remaining 49% after four years. Since it is highly probable that the option will be exercised, Orbita is consolidated to 100% from October 2, Including negative goodwill of MSEK 5 recognized as a gain in profit and loss under other non-recurring items. If the acquisitions in 2017 had taken place as per January 1, 2017, the full year net sales pro forma effect would have been MSEK 1,043. Divestments during 2017 Capio Deutsche Klinik Weissenburg GmbH Divested net assets: Capital employed 17 Net debt 4 Divested net assets 21 Capital gain from divested companies 17 Less cash and cash equivalents in divested companies -4 Outstanding sales price -1 Cash flow effect of divestments 33 Capio AB (publ) Full year report, January December (36)

25 Notes (cont.) 6. Segments Capio organizes its business in three operational segments: Capio Nordic (Sweden, Norway, and Denmark since January 2017), Capio France and Capio Germany. Each segment provides a wide range of healthcare services and the organization is structured to facilitate the provision of healthcare at the most efficient care level for each patient. Further information about the segments are found in Capio Annual Report 2016 (Business overview). The units in the segments are consolidated in accordance with the same principles applied for the Group as a whole. Transactions between Group companies and business areas are conducted on a strictly commercial basis. Other in this context relates to the Parent Company and a number of holding companies. Within Capio Nordic, a customer relationship based on one contract corresponded to a total net sales of MSEK 522 during the fourth quarter 2017 and MSEK 1,881 during 2017 (Oct-Dec 2016: MSEK 464; Jan-Dec 2016: MSEK 1,763), which is equivalent to more than 10% of the Group s net sales. Net sales and organic sales growth 2017 % 2016 % 2017 % 2016 % Capio Nordic 2, , , , Capio France 1, , , , Capio Germany , , Other Eliminations Capio Group 4, , , , EBITDA and margin Capio Nordic Capio France Capio Germany Other Eliminations Capio Group , , EBITA and margin Capio Nordic Capio France Capio Germany Other Eliminations Capio Group Operating result (EBIT) and margin Capio Nordic Capio France Capio Germany Other Eliminations Capio Group Capital expenditure and in % of net sales Capio Nordic Capio France Capio Germany Other Eliminations Capio Group Assets Capio Nordic 6,218 4,903 6,218 4,903 Capio France 6,862 6,644 6,862 6,644 Capio Germany 1,484 1,368 1,484 1,368 Other 3,980 3,259 3,980 3,259 Eliminations -4,497-3,642-4,497-3,642 Capio Group 14,047 12,532 14,047 12,532 Liabilities Capio Nordic 3,746 2,523 3,746 2,523 Capio France 3,690 3,669 3,690 3,669 Capio Germany 1, , Other 4,278 3,526 4,278 3,526 Eliminations -4,497-3,642-4,497-3,642 Capio Group 8,291 7,060 8,291 7,060 Capio AB (publ) Full year report, January December (36)

26 Notes (cont.) 7. Pledged assets For own debts and provisions 31 Dec 31 Dec Shares in subsidiaries Cash and cash equivalents Property mortgages 1,254 1,233 Endowment insurance Total 1,437 1, Contingent liabilities Dec 31 Dec Guarantee and other commitments Total Non IFRS financial measures Capio s financial model In order to support Capio s strategy and managers at all levels, Capio has developed a financial model that links relevant Key Performance Indicators (KPI) with their corresponding financial impact. As the model is based on the relation between quality, productivity and financial outcomes, the financial model supports the Group s understanding of what creates good healthcare and increased quality. This allows Capio to continuously refine its healthcare processes, enabling improved quality in healthcare provided to patients, and concurrently, improved financial results. Financial statements The Group s income statement is presented in a functional format in order to measure the productivity from the use of resources in relation to the production of healthcare. To financially measure productivity, direct costs are subtracted from net sales in order to obtain the gross result (and gross margin). Thereafter administrative expenses (overhead costs) are subtracted from gross result in order to obtain the operating result (and operating margin). Gross result is the key measure for productivity, indicating whether the Group performs healthcare operations efficiently. Operating results adds information as to whether the Group s operating structure is efficient. The Group s income statement includes certain restructuring and other non-recurring items and is adjusted from the Group's definition of EBITA. These items are mainly related to structural effects incurred over the prior years as a consequence of preparing the Group for the IPO made in 2015 and the still ongoing program in France whereby a large part of the hospital properties are being modernized. Since this project is carried out during a relatively limited period of time (just over 5 years) compared to a normal cycle (the useful life of a hospital is normally 30 years) and since it covers a considerable part of the business, the Group has made the assessment that effects related to the project are to be considered as restructuring and other non-recurring items. In addition, the Group also assesses the effects from divested and discontinued operations outside the Capio AB (publ) Full year report, January December (36)